The term `test-tube baby` is a non-medical term for babies conceived as a result of in-vitro fertilisation (IVF).

Option 1 suggests that fertilization takes place inside a test tube, which is partially true as IVF often involves combining eggs and sperm outside the body in a laboratory. Yet, the term `inside the test tube` might be misleading because the process doesn`t happen in a traditional `test tube` as implied.

Option 2 is incorrect because the development of the baby does not take place inside a test tube or any other lab equipment. After the process of fertilization, the embryo is transferred into the mother’s womb where normal growth and development occur.

Option 3 is the correct because in the case of a `test-tube baby`, fertilization indeed takes place outside the mother`s body in a controlled lab environment.

Option 4 is incorrect because an unfertilized egg cannot develop into a baby. For a successful conception, the egg must be fertilized by a sperm.